Zestimates from Zillow – disconnected from reality?

The public’s perception of Zillow seems to give their “Zestimates” more credence that they actually deserve.

Zillow has novelty value in the ability to insert an address, for a “real time” home value estimate or a Zestimate within seconds.

However, I have a couple of examples to share, that demonstrates just how unreliable these numbers can be:

This from an email received this week about my listing on Encelia Drive, La Jolla:

Zillow shows a value of about $4.5M, so how can an offer of $2.6 – $3M be legitimate ? Unless Zillow is way off.

My first reaction was “You think?”, I thought better of it though and headed over to Zillow – this is what I found:

Zillow valuing my listing over $4.6M, that’s bad enough, but wait what are those other numbers??

Range: $2.68M to $9.23M. Zillow says that more data will provide more accurate ranges.

Well yeah!

Earlier this year, Zillow updated their algorithms to try to correct some of the problems. But the algorithm still incorrectly assumes that your neighbor’s home, can be regarded as a comparable to your home. Zillow however does not know about any capital improvements, or lack of maintenance on your or your neighbors homes.

Zillow also cannot distinguish between a smart contemporary versus a historic Spanish on the same street. Or the home with the stunning ocean view versus the homes right opposite with zero views.

Zillow doesn’t really care about accuracy.

If they cared these percentages here would be unacceptable in any serious valuation model. Nearly half of San Diego Zestimates were “within 10% of actual sale prices”.

Looking at the chart I’m given to assume that nearly 75% are more than 5% wrong. In this price range 5% is around $150,000 – enough to buy a whole house in most parts of the country 🙂

The second example is an email from a long term out of State client:

We still own our two rental condos in San Diego. I have been updating my personal financials with an estimated value of the properties using Zillow, but that can vary widely with reality.

At least he get’s that it’s way out to start with. So OK, we head over to again and this greets me:

Are you kidding me? It’s so far out that’s it’s ridiculous, the chart shows the home has doubled in value in less than 2 years and now worth $685,000. NOT!

In the real world the last comparable sale of a similar townhome a couple of streets over closed at $380,000 last August. Client was understanding, if just a little disappointed – but reality is everything in this game.

At the end of the day true market value is based on what a real life buyer is willing to pay for your home at the time when your home is advertised for sale.

AVM’s (Automated Valuation Systems) undoubtedly will get better, but Zillow is going to have to try quite a lot harder on getting closer to reality.

Do you believe me now when I say:

“Zestimates” are strictly for entertainment value?

Please let me know in the comments if you have other examples of Zillow getting it wrong.

There is a lot at goes into the Zestimate calculation, but as you point out, we can't see inside the home, and we can't see if the neighbor has a old Chevy up on blocks in the front yard (no offense intended to Chevy owners).

The Zestimate is just that - an estimate. It's a starting point and isn't intended to be an appraisal or to replace the expertise and experience of a "boots on the ground" real estate agent.

I think that you have some valid comments regarding Zestimates, however it does not answer the question regarding the townhouse zestimate.

In this example Zillow estimates a value that is 100% over-flated.

There are several recent sales of similar townhomes with a 1/4 mile of the property (with very similar square footages) that have sold within the past 90 days, that would be perfect indicators of current value.

So, if the Zestimate is so far off, there can only be a couple of reasons:

1. Bad data in - Zillow is not getting the right comparable data, or it is flawed or corrupted in some way.

2. Zillows data model has serious problems.

3. The algorithms used for the Zestimate in this example are inappropriate.

All that taken into consideration I don't think any computer generated model should be wrong by 100%.

As an industry leader Zillow has a responsibility to both the industry and more importantly to the consumer, to provide meaningful reports and not try and fob off consumers with gobbledygook in a FAQ.

This quote is from the link you provided:

Who calculates the Zestimate and how do they do it?

The Zestimate is created by an automated software process, designed by statisticians, and there is no ability for humans to manually alter the Zestimate for a specific property.

So even if the owner added his 2 cents and added information to his Zillow property record, it wouldn't make the slightest difference.

A reputation:

Zillow is a leader in the housing industry, CEO Spencer Rascoff held a questions and answer session with President Obama recently.

Just yesterday Zillow co-hosted with the Bipartisan Policy Center, a forum in Washington, D.C. focused on the housing recovery. The forum was attended by various industry leaders and 100's of consumers - link here: http://www.zillow.com/education/HousingForum/

A challenge:

I believe Zillow has an implied obligation to the industry and more importantly the consumer, to invest more time, cash and resources in making these Zestimates and forecasts the best in the industry.

"So, if the Zestimate is so far off, there can only be a couple of reasons:

1. Bad data in - Zillow is not getting the right comparable data, or it is flawed orn corrupted in some way.

2. Zillows data model has serious problems.

3. The algorithms used for the Zestimate in this example are inappropriate."

These 3 points sum up exactly what is wrong with Zillow Zestimates - the whole concept is fatally flawed and causes chaos and confusion to the process of buying and selling a home.

The other comment is take issue with is the one by Jay when he states 'that a Zestimate is a starting point" as it is also the END point when Zillow refuses ALL requests by homeowners to correct or delete substantially erroneous Zestimates the way they do so. When 17% of 101 million Zestimates are more than 25% inaccurate it is reprehensible that Zillow behaves in such an arrogant manner and it is time that they were subject to some form of regulation to protect homeowners from Zillows nonsense in their greed to make themselves very rich by generating advertising revenues irrespective of the misery and financial damage caused to homeowners.

1850 Realty

Call (800) 957-3935

The small print - literally: The regional San Diego MLS provider is Sandicor Inc. The term MLS is generic, in as much as it refers to a computer-based service that provides real estate professionals with detailed listings of most homes currently on the market. Much of the information can now be obtained by the public through websites such as this one. We download San Diego MLS listings from Sandicor and display the data in a user friendly format. The information, including availability contained in this web site is updated daily from sources including Sandicor Inc, is believed reliable, but not guaranteed or warranted and subject to change without notice. **Square footage, dimensions, lot sizes, demographics, fees, availability and information on "linked" web sites have not been verified. Real estate listings may or may not be listed by 1850 Realty. This information is provided for consumer’s personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. *VRM (where applicable) Seller will entertain offers between these two prices.